You may have heard that you should update your estate plan after every major life change, such as marriage or the birth of a child. Divorce is no different. And while making or updating an estate plan may have seemed like something to do for a day in the distant future, the COVID-19 pandemic has taught us that life turns on a dime, and "someday" can come along much sooner than we think. For that reason alone, it's important to consider whether your estate plan is up to date.
When you are married to your children's other parent, if you should die without a will, your children would be cared for by your surviving spouse. Your surviving spouse would also inherit most or all of your assets under Minnesota law. There are still good reasons to have an estate plan and not to just allow everything to pass under state intestacy laws (laws that apply if there is no estate plan). But if you are divorced or divorcing, it's even more important.
When we discuss our divorce clients' estate plans with them, one of the first questions most ask is, "Will my ex get everything if I don't change my will?" The good news is that they won't! If you have a will, a divorce revokes any provision of your will that leaves any money or assets to your ex-spouse. Similarly, if you have a trust, the divorce revokes your ex-spouse's ability to receive income from the trust or to use or enjoy the property of the trust.
That's the good news. The bad news is that it then becomes more cumbersome and difficult to administer your estate or trust, which likely means it will take longer and cost more. It is worth the relatively small investment of legal fees to have an updated estate plan prepared.
Let's talk about your estate plan beyond a simple will or living trust, what you should do, and when you should do it.
Remember that your estate plan consists of more than just a way to get your possessions to the people you want to have them after your death. There are other considerations. If your co-parent is not available, whom would you want to be guardian for your children?
Then there is the question of beneficiary designations. If you have life insurance, chances are your soon-to-be-ex is the named beneficiary. As with a will or trust, Minnesota law would treat your ex-spouse who is a named beneficiary as if they had died before you for purposes of awarding benefits, and your alternate beneficiary would receive your life insurance benefit. If you do not designate an alternative beneficiary, your life insurance becomes part of your probate estate and complicates the process even further. The simplest and best course of action is to change your beneficiary designations.
Don’t forget that you may have other beneficiary designations to consider. For instance, if you have retirement accounts, through work or otherwise, you likely had to designate a beneficiary. Don't forget to change those, too.
Remember that estate planning is about more than money and assets. One very important part of your estate plan is the designation of a guardian for your children. In the event of your death, your children’s other parent would have custody of them except in extraordinary circumstances. Still, it is wise to designate a successor guardian in your will in case your co-parent is unable to care for the children for some reason.
Last but not least, it is essential to have certain documents in your estate plan that would come into play if you were to become incapacitated by a sudden accident or illness. If that happened, who would you want making medical decisions for you? Who would take care of your financial matters if you couldn't do it yourself?
A durable financial power of attorney allows a person you choose (your agent) to handle whatever financial matters you give them authority to manage, from a single transaction to having broad power over your finances.
Most married people who have a financial power of attorney appoint their spouse as their agent. You may want to discuss with your divorce attorney whether you are comfortable having your spouse remain in this role pending your divorce, or whether you prefer to appoint a different agent. While you are still married, an agent you appoint under a financial power of attorney will have limited ability to manage assets owned jointly with your spouse. Your agent essentially steps into your shoes for the purposes of financial transactions; you cannot give them the power to do something that you could not do yourself.
You also need a durable power of attorney for health care, more commonly known as a health care directive. This document authorizes your agent to make health care decisions for you if you cannot make them for yourself. If you do not trust your spouse to do this pending your divorce, find someone you do trust to act as your agent. Provide them with written guidance about what types of interventions you would and would not want, especially if your condition was incurable. If possible, make sure your medical care providers have a copy of your health care directive in your chart.
When you are divorced, it is even more important to have financial and medical powers of attorney in place, especially in these days of coronavirus, when people may go from excellent health to grave illness in a matter of days.
In many cases, you do not need to wait until your divorce is final in order to update your estate plan, though you should revisit it at that time as well to make sure it still works for you. If you have any questions about what estate planning documents you need during and after your divorce, we invite you to contact Mundahl Law to schedule a consultation.